S&P 500

A bounce on Friday remains below the short-term invalidation point but does not fit expectations for the short term picture. The last third wave up is relabelled and a problem with the last Elliott wave count is now resolved.

Summary: Bearish divergence between price and both of the AD line and inverted VIX strongly suggests more downwards movement and supports the Elliott wave analysis. Three Elliott wave counts are considered in order of probability:

1 – A minor degree fourth wave may see a pullback continue. The pullback may end about 4,301, or it may turn into a sideways consolidation.

2 – An intermediate degree fourth wave on the weekly chart may move suddenly lower to find support about the lower edge of the Elliott channel, which sits about 3,998 (first alternate).

3 – A primary degree second wave may begin. It may meet the technical definition of a bear market in that it may correct to 20% or more of market value at its eventual low. Also, it may find support about 3,066 and may not make a new low below 2,191.86 (second alternate – highly unlikely).

The biggest picture, Grand Super Cycle analysis, is here.

Last monthly charts are here. Video is here.

MAIN ELLIOTT WAVE COUNT

WEEKLY CHART

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Cycle wave V may last from one to several years. So far it is in its seventeenth month.

This wave count may allow time for the AD line to diverge from price as price makes final highs before the end of the bull market. The AD line most commonly diverges a minimum of 4 months prior to the end of a bull market. A longer divergence is positively correlated with a deeper bear market. A shorter divergence is positively correlated with a more shallow bear market. There is now only eighteen days of divergence.

A longer divergence between price and the AD line would be expected towards the end of Grand Super Cycle wave I.

It is possible that cycle wave V may continue until 2029, if the 2020s mirror the 1920s. Either March or October 2029 may be likely months for the bull market to end.

Cycle wave V would most likely subdivide as an impulse. But if overlapping develops, then an ending diagonal should be considered. This chart considers the more common impulse.

There is already a Fibonacci ratio between cycle waves I and III within Super Cycle wave (V). The S&P500 often exhibits a Fibonacci ratio between two of its actionary waves but rarely between all three; it is less likely that cycle wave V would exhibit a Fibonacci ratio. The target for Super Cycle wave (V) to end would best be calculated at primary degree, but that cannot be done until all of primary waves 1, 2, 3 and 4 are complete.

Primary wave 1 within cycle wave V may be incomplete. This gives a very bullish wave count, expecting a long duration for cycle wave V which has not yet passed its middle strongest portion.

Within primary wave 1: Intermediate waves (1) and (2) may be complete, and intermediate wave (3) may now be approaching an end.

Intermediate wave (4) may not move into intermediate wave (1) price territory below 3,588.11.

Within intermediate wave (3), minor waves 1, 2 and 3 may be complete. Minor wave 3 is now relabelled as complete at the last high and is now longer than equality in length with minor wave 1. This has a higher probability than prior labelling with minor wave 3 shorter than minor wave 1.

Minor wave 4 may not move into minor wave 1 price territory below 3,950.43.

A best fit channel is drawn about cycle wave V. Draw the first trend line from the end of intermediate wave (1) to the end of minute wave iii within minor wave 3, then place a parallel copy on the end of intermediate wave (2). The channel may need to be redrawn as price continues higher. The channel may show where price may find resistance and support along the way up.

DAILY CHART

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Minor wave 2 subdivided as a double zigzag and lasted 12 sessions. Minor wave 4 may have just begun.

Minor wave 4 may continue for another one to more likely two or three weeks. Minor wave 4 may unfold as any one of more than 23 possible corrective structures. It may find support about the 0.236 Fibonacci ratio of minor wave 3 at 4,201.63.

A zigzag within minor wave 4 may be complete at this week’s low. This may be the first zigzag of a double zigzag, a double combination, a flat or a triangle. The only structure which looks unlikely at this stage is a single zigzag for minor wave 4.

Flexibility is essential when corrections may be unfolding. Alternate wave counts need to be considered. The focus should not be on identifying exactly which structure may be unfolding, but when a corrective structure may be complete with reasonable proportion and when an opportunity for the next bull run may begin.

FIRST ALTERNATE

WEEKLY CHART

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This weekly chart is still considered.

It is possible that intermediate wave (3) is over at the last high. However, it may also continue a little higher.

Intermediate wave (4) may last from three to several weeks and may find support about the lower edge of the Elliott channel. Intermediate wave (4) may not move into intermediate wave (1) price territory below 3,588.11.

Intermediate wave (3) is shorter than intermediate wave (1) by 125.44 points. It is unusual for third waves to be shorter than first waves for the S&P, particularly of a higher degree such as intermediate. This reduces the probability of this alternate wave count.

This alternate wave count is considered because the bearish divergence between price and the AD line is strong.

SECOND ALTERNATE

WEEKLY CHART

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This third alternate Elliott wave count is considered because it is technically possible. However, primary wave 2 may correct to the 0.618 Fibonacci ratio, which would be a 31.6% reduction in market value and meet the technical definition of a bear market. This is possible but has a very low probability as there is only 31 days of bearish divergence between price and the AD line. Within the last (almost) 100 years, only three bear markets have occurred following less than 4 months bearish divergence between price and the AD line. If this wave count is correct, then it would exhibit bearish divergence of less than 4 months a fourth time in almost 100 years; the probability of this alternate is rather low.

Primary wave 2 may last one to a few months. It may not move beyond the start of primary wave 1 below 2,191.86.

TECHNICAL ANALYSIS

WEEKLY CHART

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Bearish divergence between price and RSI has almost disappeared. It is too small now for consideration.

A Hanging Man candlestick this week supports the main Elliott wave count or the first alternate. However, that is the only support for a short-term pullback in this chart. Overall, this chart is bullish.

DAILY CHART

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The Hanging Man bearish reversal pattern receives bearish confirmation, so confidence in the reversal pattern may be had. A downwards swing could possibly be complete as Stochastics reached below 50. An upwards swing within a consolidation may have begun, or it is possible that the bull market has resumed.

There is a potential trend change to down, but no clear trend at this stage.

BREADTH – AD LINE

WEEKLY CHART

Click chart to enlarge. Chart courtesy of StockCharts.com. So that colour blind members are included, bearish signals will be noted with blue and bullish signals with yellow.

Breadth should be read as a leading indicator.

There are only 31 sessions of bearish divergence between the NYSE All Issues AD line and price. This supports the main and second alternate Elliott wave counts but not the third alternate Elliott wave count.

Large caps all time high: 4,480.26 on Aug 16, 2021.

Mid caps all time high: 2,780.08 on May 10, 2021.

Small caps all time high: 1,417.45 on June 8, 2021.

With 3 months of weakness in mid caps and 2 months of weakness in small caps, some pullback or consolidation may continue.

This week the AD line has made a new swing low below the prior low of 4-5 weeks ago, but price has not. This bearish divergence adds to a cluster of existing bearish divergence and supports either the main or first alternate Elliott wave counts.

DAILY CHART

Click chart to enlarge. Chart courtesy of StockCharts.com. So that colour blind members are included, bearish signals will be noted with blue and bullish signals with yellow.

The NYSE All Issues AD line made its last all time high on July 2nd, 2021. There is over one month of bearish divergence. This suggests the market is currently vulnerable to a short-term pullback within the ongoing upwards trend. This is what the main Elliott wave count expects.

Both price and the AD line have moved higher on Friday. There is no new divergence.

A cluster of short and mid-term bearish divergence remains. This suggests further downwards or sideways movement may be required to resolve it; a pullback of just three days looks insufficient. This chart supports the main or first alternate Elliott wave counts.

VOLATILITY – INVERTED VIX CHART

WEEKLY CHART

Click chart to enlarge. Chart courtesy of StockCharts.com. So that colour blind members are included, bearish signals will be noted with blue and bullish signals with yellow.

Inverted VIX remains well below all time highs. The all time high for inverted VIX was in the week beginning October 30, 2017. There is over 3 years of bearish divergence between price and inverted VIX. This bearish divergence may develop further before the bull market ends. It may be a very early indicator of an upcoming bear market, but it is not proving to be useful in timing. It may support the third alternate Elliott wave count.

Price and inverted VIX have moved lower this week. There is no new divergence. Inverted VIX still exhibits a cluster of of short, mid and long-term bearish divergence. This supports the main or either of the alternate Elliott wave counts.

Comparing VIX and VVIX at the weekly chart level:

This week both VIX and VVIX have moved higher. There is no new divergence.

DAILY CHART

Click chart to enlarge. Chart courtesy of StockCharts.com. So that colour blind members are included, bearish signals will be noted with blue and bullish signals with yellow.

Both price and inverted VIX have moved higher on Friday. There is no new divergence.

A cluster of short, mid and long-term divergence supports either the main, first alternate or second alternate Elliott wave counts.

Comparing VIX and VVIX at the daily chart level:

Both VIX and VVIX have declined today. There is no new divergence.

DOW THEORY

Dow Theory confirms a new bull market with new highs made on a closing basis:

DJIA: 29,568.57 – closed above on 16th November 2020.

DJT: 11,623.58 – closed above on 7th October 2020.

Most recently, on 10th May 2021 both DJIA and DJT have made new all time highs. An ongoing bull market is again confirmed by Dow Theory.

Adding in the S&P and Nasdaq for an extended Dow Theory, confirmation of a bull market would require new highs made on a closing basis:

S&P500: 3,393.52 – closed above on 21st August 2020.

Nasdaq: 9,838.37 – closed above on June 8, 2020.

The following major swing lows would need to be seen on a closing basis for Dow Theory to confirm a change from bull to a bear market:

DJIA: 18,213.65

DJT: 6,481.20

Adding in the S&P and Nasdaq for an extended Dow Theory, confirmation of a new bear market would require new lows on a closing basis:

S&P500: 2,191.86

Nasdaq: 6,631.42

GOLD

Another small range day to end the week closes as a Gravestone Doji candlestick. This pattern supports the bearish Elliott wave count, slightly.

Summary: Both Elliott wave counts remain valid, but the bearish wave count is preferred. The bearish wave count expects the bounce may have ended at the last high. Thereafter, the short-term target is at 1,571, and the mid-term target is at 1,568. For the short term, a new low below 1,751.48 would add confidence that the bounce should be over. It will be possible though that while price remains above 1,778.64 the bounce may continue higher. A target would be at 1,817.

The bullish wave count now expects the bull market to resume to a target at 2,078. A new short-term target is calculated at 1,836.

The price point which differentiates the two wave counts at this stage is 1,677.64. A new low below this point would add strong confidence in the bearish wave count even though a new alternate bullish wave count would remain valid until 1,303.51.

Grand SuperCycle analysis and last monthly charts are here.

BULLISH ELLIOTT WAVE COUNT

WEEKLY CHART

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This wave count sees the the bear market complete at the last major low for Gold on 3 December 2015.

If Gold is in a new bull market, then it should begin with a five wave structure upwards on the weekly chart.

Cycle wave I fits as a five wave impulse with reasonably proportionate corrections for primary waves 2 and 4.

Cycle wave II fits as a double flat. However, within the first flat correction labelled primary wave W, this wave count needs to ignore what looks like an obvious triangle from July to September 2016 (this can be seen labelled as a triangle on the second weekly chart on prior analysis here). This movement must be labelled as a series of overlapping first and second waves. Ignoring this triangle reduces the probability of this wave count in Elliott wave terms.

Double flats are fairly rare structures. The probability of this wave count is further reduced.

Cycle wave IV may be a complete triple zigzag. Triple zigzags are not rare structures, but they are not common. The probability of this wave count is further reduced in Elliott wave terms. This is one reason why the bearish Elliott wave count is still considered.

Cycle wave V may have begun. Within cycle wave V: Primary waves 1 and 2 may now both be over, and primary wave 3 may have just begun. If it continues any lower, then primary wave 2 may not move beyond the start of primary wave 1 below 1,677.64.

DAILY CHART

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A target is calculated for cycle wave V. If this target is wrong for this wave count, then it may be too low. As price approaches the target, if the structure is incomplete, then a higher target may be calculated.

Primary waves 1 and 2 within cycle wave V may be complete.

A target is calculated for primary wave 3. Primary wave 3 should exhibit an increase in upwards momentum and have support from volume.

ALTERNATE WEEKLY CHART

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This alternate wave count is new although it has been described in comments before.

It is possible that cycle wave IV is continuing lower as a large single zigzag. Within the zigzag: Primary wave A may have completed as a leading expanding diagonal, primary wave B may be a complete zigzag, and now primary wave C may continue lower to end at least below the end of primary wave A at 1,677.64.

Primary wave C may end about support at the lower edge of either the large teal channel or the maroon channel.

Cycle wave IV may not move into cycle wave I price territory below 1,303.51.

BEARISH ELLIOTT WAVE COUNT

WEEKLY CHART

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The bigger picture for this Elliott wave count sees Gold as within a bear market, in a three steps back pattern that is labelled Grand Super Cycle wave IV on monthly charts. Grand Super Cycle wave IV may be subdividing as an expanded flat pattern.

Super Cycle wave (b) within Grand Super Cycle wave IV may be a complete double zigzag. This wave count expects Super Cycle wave (c) to move price below the end of Super Cycle wave (a) at 1,046.27 to avoid a truncation and a very rare running flat. The target calculated expects a common Fibonacci ratio for Super Cycle wave (c).

Super Cycle wave (c) may have begun with a leading expanding diagonal for cycle wave I. Leading expanding diagonals in first wave positions are uncommon, so the probability of this wave count is reduced. However, it has a good fit and must be considered.

Second wave corrections to follow leading diagonals in first wave positions are usually very deep. Cycle wave II is deep and the structure may be complete; so far it is following a common pattern. If it continues higher, then cycle wave II may not move beyond the start of cycle wave I above 2,070.78.

DAILY CHART

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A target is calculated for cycle wave III.

Primary wave 2 may be a complete double combination. Primary wave 3 downwards may have begun. Primary wave 3 has now moved beyond the end of primary wave 1 at 1,752.19, meeting this core Elliott wave rule.

Intermediate wave (2) within primary wave 3 may not move beyond the start of intermediate wave (1) above 1,832.17.

At 1,568 primary wave 3 would reach 1.618 the length of primary wave 1.

At 1,571 intermediate wave (3) would reach 1.618 the length of intermediate wave (1).

Primary wave 3 may last a few months.

TECHNICAL ANALYSIS

WEEKLY CHART

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Volume continues to not support upwards movement this week; range has declined.

Price remains below resistance about 1,800. Following last week’s bullish Hammer pattern, a weak upwards week this week is concerning for bulls. 

DAILY CHART

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There is no clear trend at this time frame. Price is still consolidating with resistance about 1,800 and above that 1,835, and support about 1,682. Stochastics did not reach overbought at the last swing high. Currently, price is again close to resistance and Stochastics is about the same level as the last swing high, so an upwards swing may be over here or very soon. Expect a downwards swing to support. 

GDX WEEKLY CHART

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There is still no clear trend at this time frame. Price is range bound.

GDX DAILY CHART

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Look for next support 26.5. There is a downwards trend for GDX at the daily chart level. Doji within downwards trends are not of a concern; they can represent a small pause. What may be of small concern though is the break below prior support at 31 is not very convincing. 

US OIL

Downwards movement this week has invalidated the main daily Elliott wave count for the daily chart. That wave count is now discarded in favour of an alternate Elliott wave count.

Summary: The Elliott wave count now expects downwards movement may end about 60.42 with an overshoot of the lower edge of the channel on the daily chart. Thereafter, the upwards trend may resume. The invalidation point is at 43.77.

Oil may have found a major sustainable low in April 2020.

ELLIOTT WAVE COUNT

MONTHLY CHART

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The basic Elliott wave structure is five steps forward and three steps back. This Elliott wave count expects that US Oil has completed a three steps back pattern, which began in July 2008. The Elliott wave count expects that the bear market for US Oil may now be over.

Following Super Cycle wave (II), which was a correction (three steps back), Super Cycle wave (III), which may have begun, should be five steps up when complete. Super Cycle wave (III) may last a generation and must make a new high above the end of Super Cycle wave (I) at 146.73.

A channel is drawn about Super Cycle wave (II): draw the first trend line from the start of cycle wave w to the end of cycle wave x, then place a parallel copy on the end of cycle wave w. This trend line is breached to the downside, which is a typical look for the end of a movement for a commodity.

The upper edge of the channel has now been breached by upwards movement. The current pullback has now moved back within the channel. The upper edge did not provide support as expected.

A new high above the high at 76.90 from October 2018 has been made. This is a significant new high and was expected from this wave count. Further confidence in a bull market for Oil may be had.

Super Cycle wave (III) may only subdivide as a five wave impulse. New trends for Oil usually start out very slowly with short first waves and deep time consuming second wave corrections. However, while this is a common tendency, it is not always seen and may not have been seen in this instance. The first reasonably sized pullback may be over already.

WEEKLY CHART

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Super Cycle wave (III) must subdivide as an impulse.

Cycle wave I within Super Cycle wave (III) may be incomplete.

It is possible that primary waves 1, 2 and 3 within cycle wave I are complete. If primary wave 3 was complete at the last high, then the current pullback may be primary wave 4.

Primary wave 3 exhibits no Fibonacci ratio to primary wave 1. Primary wave 3 at 43.32 is longer than primary wave 1, which was 33.53.

Primary wave 2 lasted 10 weeks and subdivided as a single zigzag. Primary wave 4 may subdivide as any Elliott wave structure; so far it will be labelled as a possible double zigzag, but this labelling may need to change as it unfolds.

Primary wave 4 should last another one to very few weeks to be in better proportion to primary wave 2. Primary wave 4 may not move into primary wave 1 price territory below 43.77.

Draw an Elliott channel about the impulse of primary wave 3. Draw the first trend line from the ends of primary waves 1 to 3, then place a parallel copy on the end of primary wave 2. Primary wave 4 may find support about the lower edge of this channel when it is drawn on a semi-log scale.

Labelling within primary wave 3 is this week adjusted; this has a better fit. Now the overshoot of the upper edge of the channel is the end of intermediate wave (3) within primary wave 3.

DAILY CHART

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Primary wave 4 may unfold as any one of more than 23 possible corrective Elliott wave structures. So far it will be labelled as a possible double zigzag to move lower to find support about the lower edge of the Elliott channel, but it may also continue sideways as a combination, flat or triangle.

It would be most likely that primary wave 4 would not be over. It would look too brief in comparison to primary wave 2.

A channel is drawn about primary wave 4. Price is today almost at support at the lower edge of the channel. Primary wave 4 may end with a small overshoot of the lower edge of the channel, which may see it end about the 0.382 Fibonacci ratio of primary wave 3 at 60.42.

TECHNICAL ANALYSIS

WEEKLY CHART

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Price has closed below prior support about 65, which may now offer resistance. Price is now back within a strong cluster of support and resistance, which may slow it down. There is no clear trend at this time frame.

DAILY CHART

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There is a downwards trend, which is not yet extreme, and RSI is just now oversold. RSI can reach deeply oversold and remain there while price travels a considerable distance when this market has a strong downwards trend. Look for next support below about 60 and then about 58. If a bullish candlestick develops while conditions are extreme, then it may signal a trend change.

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